Austerity is a blight on recovery, say City bosses

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Three quarters of City bosses believe the Government's austerity agenda is damaging the UK's hopes of recovery, according to new research.

A survey of some of the UK's leading chief executives of publicly listed organisations or venture capital-backed firms in industries including financial services, IT, pharmaceuticals, property and communications found three out of four chief executives said cost-cutting could not be seen as a route to growth.

The findings come as Chancellor George Osborne is under increasing pressure over his austerity plans, which he claims give the Bank of England room to keep interest rates low and stimulate the economy through printing money.

Mr Osborne's strategy faced criticism last week from Nobel Prize winning economist Paul Krugman. Bank of England rate-setters will debate whether to pump an extra £50 billion into the economy this week after an alarming plunge in activity for the UK's manufacturers in May.

Three quarters of business leaders who were asked to name the top enablers of growth said leadership was crucial, with only a quarter believing cost-cutting is a successful strategy.

"Four years ago, it was all about trimming budgets and curbing spending, but business leaders are now sending a clear message to the Government that UK Plc cannot cut its way to growth," said Campbell Macpherson, chief executive of corporate advisory firm Campbell Macpherson & Associates.

The sea change contrasts with a high-profile public letter endorsed by the bosses of 35 major companies, including the chief executives of Next and Mothercare, in October 2010 that claimed Mr Osborne's austerity measures "improve business and consumer confidence".

But official figures show the economy has been flat for the past 18 months. Further weakness is expected in the current quarter as Europe's debt crisis worsens and an extra day off for the Queen's Diamond Jubilee celebrations hits output.